Banks Likely to Delay Rate Cuts on Special Deposits Amid Liquidity Signals

Fast Summary

• Banks are unlikely to immediately withdraw high-interest special deposit schemes expiring March 31; many may extend them at lower rates, depending on liquidity conditions and RBI policies.
• Deposit cost moderation is anticipated in the first quarter, according to Debadatta Chand, MD of Bank of Baroda. Retail deposit rates remain high due to year-end financial pressures.
• Special deposit schemes like SBI’s Amrit Vrishti and HDFC Bank’s FD offers provide interest rates of 7.25%-7.35% for general customers and higher rates for senior citizens but are set to expire by the end of March.
• Industry experts expect improved liquidity as government spending picks up post-March and possible rate cuts could drive down both deposit and lending rates by Q2 (April-June).
• Data from RBI indicates slowed deposit growth (10.2% YoY) compared to credit growth (11.1% YoY), largely due to tighter liquidity conditions despite attractive term-deposit rates.

Indian Opinion Analysis

Indian banks’ cautious approach toward modifying their special fixed deposits reflects current financial priorities amidst tight liquidity and end-of-year capital requirements. With a potential rate cut on the horizon tied closely with government fiscal activity post-March, the decision will likely reduce borrowing costs while making savings less lucrative in relative terms-impacting consumers’ investment behaviour moving forward.

The slower pace of deposit growth compared to credit signals a tighter credit-to-deposit ratio challenge that demands banks strategically enhance their liability franchises alongside focusing on cost control mechanisms like reduced FD interest rates without jeopardizing depositor confidence.

Read More: Economictimes Article